Answered: The following equation has been used to…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

The following equation has been used to estimate wages:

ln (Y) = ln (Y_o) + b₂EDU + b₃ EXPER + b₄EXPER² + e

where Y is income, Y₀ is income of someone with no education or experience, EDU is years of education and EXPER is experience in the field. If you suspect males earn higher wages than females and that the wage difference increases with education how would you adjust the econometric model to estimate wages?

OPTIONS -

a. include a binary variable for gender, MALE

b. include an interaction term equal to MALE* EDUC

c. include an indicator variable for MALE and one for FEMALE

d. include a binary variable for MALE and an interaction term equal to MALE * EDUC

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